United Arab Emirates: Court of Cassation Dispute Ruling

Last Updated: 17 December 2010
Article by Ammar Haikal and Suzanne Abdallah

A civil action was filed before Dubai Court of Cassation by a local Transport and Contracting Company ("Party A") against a Limited Liability Company ("Party B"). Party A requested the court to ratify an arbitral award issued under the auspices of the Dubai International Arbitration Centre ("DIAC") which directed Party B to pay Party A the amount of AED 26,597,651.27 plus 9% interest until full payment in addition to costs in the amount of AED 764,625.

Facts

On 5 March 2006 the parties executed a Muqawala agreement ("the Agreement") for a project in Dubai ("the Project"). Party A submitted that following an unsuccessful attempt to amicably settle a dispute with Party B which dispute had arisen out of the Agreement, it had referred the matter to arbitration. An award in favour of Party A was issued by the three-member Tribunal. Party A filed an action to enforce the award. Party B requested that the award be set aside on a number of grounds:

  • The parties had not agreed on the scope of the arbitration in the terms of reference;
  • Party B was not authorized by the owner of the project to enter into the arbitration agreement;
  • The arbitration clause was null and void as the conditions of the concerned agreement contained the signature and stamp of Party A but not Party B;
  • That Party A expressed its intention commence arbitration proceedings on 22 August 2007 which was outside the time required by the pre-conditions to arbitration (i.e. Party A had not followed the pre-conditions to arbitration set out in the arbitration agreement thus depriving the Tribunal of the requisite jurisdiction);
  • That all tribunal's hearings were held, contrary to the arbitration clause, in Dubai and not in Umm Al Quwain; and
  • That the award included legal interest starting from 13 December 2007 until full payment despite the fact the parties had not agreed on interest in the arbitration clause.

Court of First Instance

The Court of First Instance ruled in favor of Party A and ratified the arbitration award.

Consequently, both parties appealed to the Court of Appeal. Party A requested the court to add immediate enforceability to the verdict whereas Party B requested the court to dismiss the lower court's decision and to cancel the arbitration award, again on the basis that Party A had not followed the pre-conditions to arbitration.

Court of Appeal

The Court of Appeal dismissed Party A's appeal. As for Party B, the Court of Appeal reversed the lower's court decision and cancelled the arbitral award.

The Court of Appeal interpreted Articles 208, 212 and 213 of the UAE Civil Procedure Law to be read together as follows:

  • There are two types of arbitration, being institutional arbitration and ad hoc arbitration. The former involves arbitration under the auspices of an institution, such as DIAC. The latter, ad hoc arbitration, is effectively a system of arbitration governed by the law of the seat that is created specifically for a particular dispute.
  • The Court of Appeal took into consideration a settled principle previously decreed by the Court of Cassation in that "reference in the original contract to the document that contains the arbitration clause can be treated as an agreement to arbitrate any dispute arising out of the contract between both parties if the arbitration clause is specifically referred to.
  • However, general reference to that document without specific reference to the arbitration clause included in that document cannot be treated as an agreement to arbitrate disputes arising out of the contract. Moreover, annexes and schedules that are attached to any contract are considered as part of the contract and do not require signature of the parties in order to be effective unless they contain an arbitration clause.

The Court of Appeal took also into consideration another principle previously established by the Court of Cassation in that "if the contractor's contract refers any dispute arising out of such contract between the contractor and the owner to the general conditions of FIDIC, it means that parties agreed to arbitrate any dispute arising out of such contract without a need to explicitly agree on it in the contractor's contract".

The Court of Appeal held that a Letter of Acceptance dated 5 March 2006 did not refer any dispute between the parties to the FIDIC Contract, and further, did not refer explicitly to the arbitration clause existing in the annexes attached to the contract.

Accordingly, on the basis that there was no effective agreement to arbitrate the dispute between the parties, the Court of Appeal annulled the arbitration award.

Party A appealed to the Court of Cassation.

Court Of Cassation

Party A argued that the Court of Appeal had erred in its decision to reverse the lower Court's decision and annul the award. The main grounds of Party A's appeal were that:

  • The tender form and the general handbook conditions constitute a binding contract for both parties, whereas the Letter of Acceptance dated 5 March 2006 should be considered as an integral contractual document. Party A submitted that this meant that the parties had intended to refer to arbitration any disputes arising out of the Agreement.
  • Party A argued further that the Court of Appeal had erred when it held that the Letter of Acceptance did not refer the settlement of disputes to be governed by the general conditions of FIDIC.

The Court of Cassation interpreted Articles 203 and 216 of the Civil Procedure Law to mean that the arbitration clause should be in writing and that arbitration is a final and binding form of dispute resolution outside the usual forum (i.e. the local courts).

The Court of Cassation further held that an arbitration agreement is capable of either being incorporated as a clause in a contract or as a separate independent agreement. However, it is not required that the offer and acceptance to an arbitration clause be on the same document – the offer and acceptance can be in two separate documents as long as the acceptance matches the offer. The Court of Cassation also found that parties can agree to arbitrate by simply signing a document where the existence of an arbitration clause can be evidenced by letters, telegrams and any other written communications, if such letters, telegrams or other written communications are signed or are proven to have been delivered by the sender.

The merits of any arbitration cannot, however, be reheard either by another tribunal or through the court. Article 216 of the UAE Civil Procedure contains an exhaustive list of reasons upon which parties may apply for the annulment of an arbitration award whilst the court is examining the award for ratification purposes.

The Court of Cassation held that arbitration reflects the common intention of both parties to arbitrate pursuant to an arbitration clause incorporated in the general conditions of an agreement signed between the parties or pursuant to a separate independent agreement signed by both parties.

In this case, the Tender was held to be a method of contracting of Muqawala work. In principle, the contract shall be deemed concluded once the acceptance meets the offer and the bidder knows that he has been awarded the Tender without any other formality.

The Court of Cassation held that it is clear from the documents submitted in the case that Party B did Tender for the execution of works involving in the first phase of site demarcation of the Project site, which Tender included an invitation to conclude a contract. However, Clause 5(2) of the Contract, dealing with the priority of contract documents, provides that:

"The various documents that make up the contract shall be considered as interpreting each other but whenever there is contradiction or ambiguity between the engineers shall explain or amend such contradiction who shall thereupon issue to the contractor instructions thereon and in such event, unless otherwise agreed in the contract, the priority of the documents forming the contract shall be considered as follows: 1- Muqawala contract; 2- acceptance letter; 3- the Tender; 4- part 2 of these conditions; 5- part 1 of these conditions; 6- any other document that constitute a part of the contract".

Party A submitted its offer/bid in compliance with the Tender conditions without objection to the arbitration clause. Party B, in the Letter of Acceptance accepted Party A's offer, with a comprehensive contract incorporating the specifications and general conditions of a contract to be ultimately drafted.

In light of the above the court of Cassation held that on 3 May 2006, the date of the Letter of Acceptance, the contract was concluded between both parties through the Tender and its conditions, which incorporated the arbitration clause. That the Court of Cassation found that this meant that the parties had agreed to refer any dispute arising between them to arbitration and that there was no requirement to specifically agree to refer all disputes to arbitration. The effect of this is that neither party can unilaterally repudiate the arbitration clause or escape its effect.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Ammar Haikal
 
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